Commentaries

PMC Weekly Review - March 6, 2015

Domestic equity markets rallied sharply in February, more than making up for January’s losses. The market reacted to continued solid economic data during the month, as well as improving conditions internationally, specifically in Europe. The European Central Bank’s (ECB) decision to implement a U.S. Federal Reserve-style asset purchase program remains a primary catalyst for European equity prices, with U.S. stocks also positively reacting due to the prospect of energized growth in the region. Economic data continued to provide support, with real Gross Domestic Product (GDP) and employment remaining prominent factors in the market’s gains. The second estimate of fourth quarter real GDP came in at +2.0%, below the initial forecast of 2.6%.

With this environment as a backdrop, stocks delivered generally strong results in February. The S&P 500 gained +5.8% for the month, overcoming the -3.0% return for January. The Dow Jones Industrials (DJIA) advanced +6.0% for the month. The tech-heavy Nasdaq Composite Index rallied +7.3% in February. The Russell 2000 Index of small cap stocks posted performance in line with the Russell 1000 Index of large cap stocks, with returns of +5.9% and +5.8%, respectively. Growth stocks once again outperformed value stocks during the month. In terms of sector performance, the top performers in the month were consumer discretionary, information technology and materials, with returns of +8.6%, +8.2% and +8.0%, respectively. Utilities and energy were the poorest performers, with returns of -6.4% and +4.1%, respectively.

International equity markets were, on balance, also robust performers in February. Markets continued to respond well to the ECB’s impending asset-purchase program that is slated to amount to about $1.3 trillion. The MSCI World ex-U.S. Index gained +5.4% for the month, and is up +5.2% year-to-date. Emerging markets lagged somewhat in February, but still generated a positive return, as depressed commodities prices continue to weigh on emerging economies. The MSCI Emerging Markets Index advanced +3.1% for the month, and the MSCI EAFE Index, which measures developed markets performance, was up +6.0%. Regionally, Eastern Europe was by far the best performer on a relative basis, surging +15.5%. Asia and China were among the poorest relative performers, with results of +2.4% and +3.1%, respectively.

Fixed-income markets were mostly lower in February, as investors adopted more of a “risk-on” posture following positive economic data and the ECB’s stimulative measures. Against this backdrop, the 10-year U.S. Treasury yield ended the month at 2.00%, up 33 basis points from the 1.67% level of January 31st. Broad-based fixed-income indices lost ground in February, with the Barclays U.S. Aggregate Bond Index declining -0.9% for the month. Global fixed-income markets also had a difficult time, as the Barclays Global Aggregate ex-U.S. Index dropped -0.8% for the month. Intermediate-term corporate bonds also slumped, as the Barclays U.S. Corporate 5-10 Year Index fell by -0.7%. The Barclays U.S. Corporate High Yield Index delivered a second consecutive month of gains, advancing +2.4%. Municipals finally retreated after a long string of solid performance, declining -1.0% for the month.

The information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained in this weekly review is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. All investments carry a certain risk, and there is no assurance that an investment will provide positive performance over any period of time. An investor may experience loss of principal. Investment decisions should always be made based on the investor’s specific financial needs and objectives, goals, time horizon, and risk tolerance. The asset classes and/or investment strategies described may not be suitable for all investors and investors should consult with an investment advisor to determine the appropriate investment strategy. Past performance is not indicative of future results.

Information obtained from third party sources are believed to be reliable but not guaranteed. Envestnet|PMC™ makes no representation regarding the accuracy or completeness of information provided herein. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.

Investments in smaller companies carry greater risk than is customarily associated with larger companies for various reasons such as volatility of earnings and prospects, higher failure rates, and limited markets, product lines or financial resources. Investing overseas involves special risks, including the volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. Income (bond) securities are subject to interest rate risk, which is the risk that debt securities in a portfolio will decline in value because of increases in market interest rates. Exchange Traded Funds (ETFs) are subject to risks similar to those of stocks, such as market risk. Investing in ETFs may bear indirect fees and expenses charged by ETFs in addition to its direct fees and expenses, as well as indirectly bearing the principal risks of those ETFs. ETFs may trade at a discount to their net asset value and are subject to the market fluctuations of their underlying investments. Investing in commodities can be volatile and can suffer from periods of prolonged decline in value and may not be suitable for all investors. Index Performance is presented for illustrative purposes only and does not represent the performance of any specific investment product or portfolio. An investment cannot be made directly into an index.

Alternative Investments may have complex terms and features that are not easily understood and are not suitable for all investors. You should conduct your own due diligence to ensure you understand the features of the product before investing. Alternative investment strategies may employ a variety of hedging techniques and non-traditional instruments such as inverse and leveraged products. Certain hedging techniques include matched combinations that neutralize or offset individual risks such as merger arbitrage, long/short equity, convertible bond arbitrage and fixed-income arbitrage. Leveraged products are those that employ financial derivatives and debt to try to achieve a multiple (for example two or three times) of the return or inverse return of a stated index or benchmark over the course of a single day. Inverse products utilize short selling, derivatives trading, and other leveraged investment techniques, such as futures trading to achieve their objectives, mainly to track the inverse of their benchmarks. As with all investments, there is no assurance that any investment strategies will achieve their objectives or protect against losses.

Neither Envestnet, Envestnet|PMC™ nor its representatives render tax, accounting or legal advice. Any tax statements contained herein are not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties. Taxpayers should always seek advice based on their own particular circumstances from an independent tax advisor.